Hello everyone.
Can you please help me confirm that I have well understood the concepts of Standard Deviation, Skewness and Kurtosis based on the following example.
Given the following table for a specific stock:
Holding period Annualized mean return Excess Kurtosis Skewness Standard Deviation
1 month 38.24% 85.14 7.68 0.17
3 months 37.54% 25.64 4.32 0.29
6 months 35.55% 12.21 3.14 0.41
12 months 33.56% 7.44 2.64 0.61
24 months 31.15% 1.43 1.44 0.90
48 months 29.01% 2.03 1.66 1.67
72 months 19.15% -0.72 0.56 1.48
Considerating that transaction costs are not taken into account and only based on return, trading on a monthly basis will generate a greater return.
If I take Standard Deviation, it implies that 1 month trading is also the least risky.
72 months trading has excess kurtosis and skewness close to 0 meaning it is close to a normal distribution.
Theory says investors should go towards positive skewness so here 1 month trading will be our choice.
However excess kurtosis tells that 1 month trading will have the fatest tails implying greater risk which contradicts standard deviation. Skewness for 1 month trading is very high meaning that we are far from normal distribution and that standard deviation should not be taken to seriously.
As a consequence should we say 1 month trading is the most risky strategy?
Thank you for your help